IT STRATEGY - Outsourced to India.

There was a time when the world used to speak about Japan Inc. But now India Inc is increasingly emerging as a global contender, largely on the back of its programming skills, which are being widely used by western companies and software vendors. The message is so clear that it prompted US president Bill Clinton to comment to prime minister IK Gujral: “After all, you Indians own half of Silicon Valley.” European companies have been making savings of up to 50% on their programming costs by outsourcing software development projects to India, spurring a huge boom in the subcontinent’s IT business. Indian software exports are projected to climb 30% in 1999, from the estimated $1.8bn to $2bn at the close of the present financial year. Much of this growth is coming from Europe, and companies such as the Karnataka Group, an Anglo-Indian software provider, are doing good business connecting European companies with the large pool of Indian programming talent. “By tapping into the skills’ base in India we can carry out a project for about half the amount it would cost in Europe,” says Simon Dennison-Smith, the company’s managing director in the UK. Dennison-Smith believes that high levels of interest in engineering among young Indians has created the wealth of technical skills the country has to offer compared to its European counterparts. Western companies are also setting up their own operations to exploit the large pool of programming talent. Microsoft, Computer Associates and Holland’s Baan are joining the likes of Oracle, Texas Instruments and Motorola. Baan is expanding its Indian operations in a big way to turn its wholly owned Indian subsidiary into a major sourcing centre in the subcontinent for its global customers and channel partners. “Baan City” will represent a $25m investment just outside Hyderabad. The company is also establishing authorised training centres (ATCs) in New Delhi, Bangalore (considered India’s own Silicon powerhouse) and Chennai to help spread Baan software usage in the country. Interestingly, as far as Baan’s R&D spending is concerned, India ranks second only to Holland. Though Baan made a low-key entry into India a decade ago as an enterprise resource planning (ERP) vendor, it is only during the last three years that it has begun to look at India as a geo-strategic location for outsourcing its software development, and to build a resource base to design and customise its products and services. With a market share of 22% in ERP products and services, claims an IDC survey, Baan has emerged as the second largest player in the Indian IT industry, next to SAP India. Heavyweight rivals Microsoft and Oracle have taken their war to India, with Oracle signing partnerships for its network computer architecture with five major companies in the subcontinent. The database giant teamed up with the Indian subsidiaries of Digital, NCR, Optima, IBM and Price Waterhouse, just a week after Microsoft decided to locate its second software development centre in India. The UK-based FI Group, which owns over 97% equity in its local software outfit IIS Infotech Ltd, plans to invest an additional $175m in India. The company has now turned its focus to euro-conversion projects, a classic labour-intensive software engineering task which can really benefit from the lower overhead and skilled labour costs in India. According to a recent survey conducted by the World Bank, India was ranked number one choice for US companies outsourcing code development. The country’s IT companies have their biggest chance to expand the software business with the dual threats of the millennium bug and the euro currency conversion, each of which present revenue opportunities of about $1bn over the next two years. But India’s internal IT industry is still developing slowly, according to Dennison-Smith. Sanjay Kumar, president of Computer Associates which recently announced plans to invest $100m in India, put the country’s computer base at only 1.8 million for a population of 930 million, and believes there must be greater investment in hardware. India has to support more entrepreneurs and move up the value chain, he commented. One of the problems facing India and other developing regions is the unreliable infrastructure. Modern data communications function perfectly with digital telephone exchanges, but spreading technology and know-how outside the major cities is difficult if telephone line quality is too poor to support modem use. For programmers and companies in the West, access to the Internet, for example, is not just handy, but essential. Equally, the electricity system is prone to brown-outs – short periods of significantly lower current – which make computer use tricky. While most users in the west only consider uninterruptable power supplies for truly mission critical systems, even the humblest PC ought to have one in India. New technological developments should help, and the presence of Western investment ought to hurry along infrastructure improvements such as digital phone exchanges, wireless technology and satellite communications. Ironically, India has a very small domestic year 2000 (Y2K) problem, since it barely computerised until the late 1980s. But the software industry, which made $1.8bn in revenues and $1.15bn in exports during 1996-97, hopes to ride the surge in Y2K business to become a global leader in software technology by 2015. According to industry estimates, India has already bagged more than $800m worth of Y2K projects orders. NASSCOM (the National Association of Software and Service Companies) recently announced that Indian firms would tap business worth over $2.5bn from global Y2K conversion opportunities. But India’s own skills shortage, a slow start, poor infrastructure and lack of coordination have, in the opinion of some, wasted the Y2K opportunity. Many are now looking to the euro, rather than the millennium bug, as the crisis that India can really profit from solving. With major programming companies fully occupied with the millennium bug, so far there has been lukewarm response to the euro issue. Only a few companies are actually working on projects – a trend that is not limited to India. Worldwide, companies are still unprepared for the currency change on 1 January 1999. “Indian companies are in a unique position to offer cost-effective solutions for the euro conversion,” says Dewang Mehta, executive director of NASSCOM. The Gartner Group has predicted a potential business of £200bn, since 85% of all commercial systems need to be changed to accommodate the euro. “The euro conversion project is likely to be the next moneyspinner for India after Y2K,” says Asutosh Gupta, CEO of IMR India, one of the few Indian companies to start work on the euro. Very few Indian companies had automation tools needed for such projects. “Manpower availability will determine who will do much of the business,” he added. His reading is that most of the US companies will jump into the fray and subcontract the programming and testing areas to developing countries such as India. Another company that is developing tools for euro programming is Peritus India. According to its centre head M Radhakrishnan, euro compliance will require sophisticated enhancement of software. Peritus is developing tools for software companies the world over which will offer impact analysis tools in the first phase and limited conversion support in the next, according to company sources. Since modifications will also be felt by the end-user, retraining will form a large part of the project, says Radhakrishnan. The implementation part will probably be subcontracted to European companies, though the Indian IT community, being English-speaking, can also try to win the contracts, he added. And with so many European IT firms looking for manpower in the subcontinent, even the contracts they win may wind up in the hand of project managers in Bangalore or Delhi. Indian companies enjoy a headstart over their nearest rivals thanks to the educational ethos drilled into many children from an early age. High standards of mathematics, engineering and logic in Indian schools have be present for many years – certainly before the computer revolution – and give Indian programmers an edge over their rivals in countries when it comes to offering error-free, quick and efficient solutions, Mehta says. The fact that India represents the second largest pool of English speaking workers only adds to their edge. While India can expect competition from countries such as Ireland, Hungary and the Philippines, it is projects like the euro and Y2K problems that offer a chance to steal a march. Building vital links with companies in the US and Europe now will certainly reap rewards down the line. As one industry analyst says: “The Indian software industry has not exploited the potential that the European market offers. The euro provides a unique and significant opportunity to broaden the Indian base in Europe and build foundations for the partnership that will catapult India into the new millennium.” Additional reporting by Andy Donoghue.